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Corus buys 45 TV channels in $2.65B Shaw deal

Corus Entertainment says its buyout of Shaw Communications’ media business will give if the scale to compete with larger broadcasters.

The Corus building on Queen's Quay in Toronto. Corus Entertainment is aquiring Shaw Media which includes 45 speciality TV stations including the Global Television Network. (Lucas Oleniuk / Toronto Star) | Order this photo

Corus Entertainment says its buyout of Shaw Communications’ media business will give if the scale to compete head on with larger broadcasting rivals and with fast growing streamed content providers including Netflix.

The proposed $2.65 million acquisition of Shaw Media could also transform parent Shaw Communications into a “pure-play” wireless and cable provider, chief executive officer Brad Shaw said in a memo to staff after the proposed Corus transaction was announced Wednesday.

He said it will allow Calgary-based Shaw to focus on expanding its footprint as Canada’s fourth national wireless service provider with a view to wresting market share from leading incumbents, notably western rival Telus.

Media

The Corus buyout of Shaw Media aims to consolidate media assets of the two companies, which trade as separate entities and have remained majority owned by the Shaw family since Corus was spun off from Shaw Communications in 1999.

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The deal will produce up to $50 million in operating cost efficiencies and could signal layoffs and the divestiture of under performing specialty channels over the next year or two, analysts said.

The combined entity will own all of Shaw’s leading media brands and boast a portfolio of 45 specialty television channels, 39 radio stations, digital assets, content studio Nelvana and 15 conventional TV stations.

Corus, which operates children’s television channels including YTV, Nickelodeon and Cartoon Network, will add specialty properties including National Geographic, Food Network Canada and HGTV Canada.

Corus will also be acquiring the Global television network in the cash-and-stock deal while Shaw will retain its interest in the Shomi streaming video service, a joint venture with Toronto-based Rogers Communications.

The Shaw family would own 39 per cent of Corus shares when the deal closes as expected in the third quarter of fiscal 2016 and regulatory approvals are likely since the deal would not involve a change of ownership, said Corus CEO Doug Murphy.

“This combination fits like a glove,” Murphy said on a conference call.

He added that it will help Corus navigate regulatory changes that will mandate that distributors offer so-called skinny basic cable and satellite TV bundles by March 1, with consumers also to be given the option of picking individual channels by year end.

Murphy said Corus will maintain a “strong, Canadian voice” across a conventional and specialty channel TV market that is being challenged by Internet content providers such as Netflix that are exempt from the country’s broadcast regulations.

Changes being implemented by the federal broadcast regulator also reduce obligations for investment in Canadian programming and Murphy said that means Corus can spend more on original TV content Canadians want to watch and that can be exported around the world.

He also said the deal will allow Corus to cross promote content and to offer advertisers a competitively priced bundles across traditional and digital new media platforms.

Telecom

Along with strengthening its wireless and cable businesses, Shaw Communications said the deal will help finance the company’s $1.6 billion purchase of Toronto-based discount wireless carrier Wind Mobile.

The transaction significantly removes the risk that Shaw will need to issue shares to fund the Wind deal. Canaccord analyst Aravinda Galappatthige said he expects investor sentiment to improve towards Shaw and to decline towards the wireless incumbents as a result

But while the deal will improve Shaw’s balance sheet, it also increases the prospect of a lower credit rating and higher borrowing costs for Corus after the company adds debt to acquire Shaw Media.

Standard & Poor’s analysts said the buyout could push the Corus credit grade a notch below its current BB+, adding that falling ad revenue in a fragmented viewing market could counter the deal’s scale and efficiency benefits.

Corus said it believes the deal will push its debt to four times earnings but aims to bring that down to below three times in two years. Corus shares declined 7.9 per cent in Toronto trading while Shaw rose nearly 5 per cent to $24.70.

Additional assets include Sundance Channel (Canada) and Telelatino; Quebec’s French-language channels Historia and Séries+, TELETOON and La chaîne Disney; western Canada’s pay TV service Movie Central, with nine multiplex channels including HBO Canada; and three local over-the-air television stations.

Radio: Corus also owns 39 radio stations clustered in eight out of the ten top Canadian markets, including a network of news-talk radio as well as classic rock, country, new rock and contemporary music formats.

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